Zillow’s forecast for the 2025 housing market in a word? Bumpy

It seems like home sellers have had the upper hand in the housing market for years now, but rising inventory has steadily increased the amount of leverage for buyers.

That trend will continue in 2025, according to Zillow’s annual housing market forecast. The portal giant projects a “bumpy” year for housing but one that could ultimately result in buyers coming out ahead.

This is particularly true in the Southwest. Zillow said that buyers’ markets will spread across the region, provided that mortgage rates don’t drop dramatically and increase pent-up demand.

“More inventory should shake loose in 2025, giving buyers a bit more room to breathe,” Zillow chief economist Skylar Olsen said in a statement. “Americans are adapting to sky-high costs by embracing coziness, a term that for so long has been a thinly veiled critique in real estate lingo. “

Zillow expects home-price growth of 2.6% in 2025, which is largely in line with growth from this year. It also projects 4.3 million existing-home sales, with some buyers reversing the post-pandemic trend of buying for more space by choosing smaller homes.

But mortgage rates are a major wildcard. While the Federal Reserve was previously expected to cut interest rates throughout 2025, Donald Trump’s election clouds the picture.

This week, Trump proposed a 25% tariff on Mexican and Canadian goods, with an additional 10% tariff on good from China. Economists broadly consider tariffs that large to be a recipe for reigniting inflation, which would likely prompt the Fed to hold off on rate cuts.

Coupled with the potential for elevated mortgage rates, the tariffs would likely raise the costs of inputs for homebuilders and exacerbate affordability problems. Homebuilders also believe that Trump’s plan for mass deportation of immigrants would reduce the labor supply and thus make it more expensive. This could negatively impact new-home sales.

Zillow is the latest company in the real estate space to publish a 2025 housing market forecast — and it echoes others.

HousingWire’s forecast, compiled by Lead Analyst Logan Mohtashami and Altos Research President Mike Simonsen, projects slightly fewer existing-home sales than Zillow at 4.2 million. The pair expect home-price appreciation of 3.5% — higher than Zillow’s — and an inventory increase of 13%.

Fannie Mae and the Mortgage Bankers Association downwardly revised their housing market forecasts after Trump’s election cast doubt on the direction of mortgage rates. MBA expects existing-home sales of 4.3 million, while Fannie Mae projects 4.5 million — 4% growth over 2024 levels.

Expectations for existing-home sales vary. Of the forecasts analyzed by HousingWire, they range from 4.2 million to 4.9 million.